Tesla earnings nosedive

Elon Musk might dream of a fully autonomous fleet of Tesla taxis, but falling demand, mounting losses and tight cash are haunting his reality.

Musk took four hours to present his vision, where cars turn into money-spinning self-driving taxis while their owners are at work or asleep, earlier this week.

Yesterday he presented a reality of a 41-percent drop in first-quarter revenue, a 38-percent fall in sales and a 59-percent plummet in cash-on-hand.

The results saw the share price finally crash below the US$260-a-share barrier, even though Musk released the Q1 financial results well after the close of the stock market yesterday. Tesla shares fell 1.99 percent to US$258.66 overnight.

Though Musk continued to sound upbeat, the future of the ground-breaking electric-car maker looks as bleak as it has in years.

Revenue from its automotive business fell from US$6.3 billion in Q4 last year to US$3.7 billion in the first quarter of this year.

It slipped from two consecutive quarters of small profit (including US$139 million in Q4 2018) to a net loss of US$702 million, its operating cashflow went red to the tune of US$640 million and its cash-on-hand dropped to just US$2.2 billion.

Only six months ago Musk told analysts he predicted positive net income and cashflow “for all quarters going forward”.

As recently as January he predicted a profitable Q1, saying: “Not by a lot, but I’m optimistic about being profitable in Q1”.

More pointedly, Musk refused to be drawn on rumours of falling demand for his three-model EV range, saying only: “I don’t have a crystal ball, so it’s hard for me to say, but my impression right now is demand is strong.”

The numbers seem to refute that, with customer deposits dropping to US$768.3 million from US$792.6 million in the last quarter of 2018. Unlike the hype over the Model 3’s 400,000 reservations, Musk refuses to be drawn on demand for the Model Y, saying:

“People read too much into this”.

The flipside of that is that Tesla’s inventory of cars in hand rose from US$3.1 billion in the Q4 2018 to US$3.8 billion in the Q1 this year, but Musk insists the problem lies with logistical issues in Europe and China rather than falling demand.

According to the Tesla CEO’s own forecasting, Tesla’s entry-level Model 3 should have lead the company to sell half a million cars last year, but it was limited to 146,000.

Tesla yesterday insisted it would deliver between 90,000 and 100,000 cars in Q2, up from just 63,000 in Q1, and though it predicted it would once again lose money, it estimated a small profit in Q3.

Its Q1 performance saw Tesla build more Model 3s than it did in Q4 2018, but deliver about 20 percent fewer of them. Its Model X and aging Model S deliveries fell 56 percent, too.

It has lead Tesla to discount cars and its business model has taken a turn for the erratic, announcing it would close its stores and turn to on-line sales, only to flip that around within days, and it also announced it would finally build the promised US$35,000 Model 3, then withdrew it, then promised it again.

Musk has also insisted that its Chinese factory would be building production cars this year, though he yesterday admitted (in line with predictions from just about everybody in the car industry) that it would be on line in late 2020 at the earliest.

What’s worse for Tesla is that its cashflow has turned negative, even with Musk announcing a round of layoffs earlier this year and US$400 million in spending cuts.

Its capital spending on assembly lines and manufacturing operations is in decline, falling from US$325 million in 2018’s fourth quarter to US$280 million in 2019’s first quarter, after topping US $1 billion in late 2017.

Even its much-hyped solar roof tile, a key part of the pitch to bail out the ailing Solar City and bring it inside Tesla’s portfolio, has failed to make an impact, with Musk admitting it was now on the third version of the solar tile and that it would not be in mass production for at least a year.

The energy and battery storage business side of Tesla dropped 38 percent to US$4.5 billion – or back to where it was in 2013.

Yet Musk still maintains it will begin production of its electric truck next year and that Tesla has ordered the tooling for the new Model Y, based on the Model 3. Musk admitted, though, that he didn’t know where the Model Y would be built, which would limit how much of the tooling could be ordered.

Musk won’t go to the markets for a capital raise, though, even if it’s unlikely the markets would respond positively with Tesla’s bond rates already at eight percent.

“I don’t think raising capital should be a substitute for making the company operate more effectively,” he said yesterday. “I think it’s healthy to be on a Spartan diet for a while.”

Goldman Sachs, a former ally of Tesla’s and formerly Musk’s personal banker, now has a “sell” recommendation on Tesla and a target price of just US$210 a share.

Its analyst David Tamerrino wrote in a recent investment note that he would change his mind if he saw enough “sustained positive free cash flow” to allow Tesla to “self-fund growth”.

It might all be getting to the billionaire Tesla leader, with Musk tweeting on Saturday “Tesla is just trying to make electric cars & solar power for a better future for all. True, we might not succeed, but why do they want us to fail?”.

Tesla Net Income, US$ Millions
Q1 2019: -702
2018: -976
2017: -1,961
2016: -675
2015: -889
2014: -294
2013: -74
2012: -396
2011: -254
2010: -154
2009: -56
2008: -82
2007: -78